The real rate of interest is
A)the nominal rate of interest minus the anticipated rate of inflation.
B)the current rate actually paid by the borrower.
C)the difference between the bank's lending and savings rates.
D)the current rate which the government pays on its debt.

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal rate of interest minus the anticipated rate of inflation, because inflation erodes the purchasing power of money over time. The real rate of interest reflects the true cost of borrowing or the true return on saving after accounting for inflation.

The Real Rate of Interest Is